Bernie Smith is a network security analyst at ZNA bank, earning $120,000 per annum, plus super. He is 48 years old and married to Deena, 42 years old. Deena is a self-employed dentist and her annual taxable income is $150,000, after contributing $10,000pa to superannuation and paying $45,000pa in business overheads. Her equipment is owned outright and market value of $110,000. They have twin girls, 12 years old, who currently attend their local state primary school. Next year they will be going to a private high school that will cost $22,000 per annum all-inclusive. Once the girls finish high school they will use the money to contribute to superannuation to build up their superannuation for retirement.
Their home is worth $1.5 million and the mortgage is $620,000 and they want to clear this debt in 10 years and the offset account has a $45,000. The interest rate is 4.2%pa and their monthly repayments are $6336 ($76,032 pa). Their living expenses are $78,000pa (net of the high school fees
and mortgage repayments) and this leaves surplus of approximately $24,000pa, which they use for holidays and/or small updates around the house and garden.
On the weekends, Bernie and Deena like to take the girls out trail bike riding and hiking. Bernie does have an interest in rock climbing and still engages in this activity once every couple of months as Deena worries it can be a bit dangerous. Their bikes and sporting equipment is worth approx.
$15,000.
They have an investment property worth $580,000 and the rental income is covering the repayments and the investment loan of $350,000 will be cleared in 15 years with that rental income.
They will sell the property at retirement and add the capital to superannuation to fund their retirement. They have been having the renewing the same home and content insurance policy the last 9 years. He drives a 2012 Subaru Forester (market value $17,000) but usually walks or drives to the local train station during the week and catches the train to work. Deena drives a 2019 BMW X5 (market value $105,000) to work and parks in the dental practice premises 2-car private garage.
They own both cars outright. Bernie has a share holding from the ZNA bank of $72,000. They each have approx $200,000 in their respective superannuation accounts with life and total & permanent disability insurance cover of $100,000. The couple has comprehensive private health insurance cover. Overall their general health is good.
Bernie is refers to himself as a ‘social smoker’ and this means that he will have 1-2 a day at work and tends not to smoke on the weekend around the children or Deena who does not like it. Bernie’s father is a smoker and both his parents are still alive and relatively well in their late 70’s. Deena’s father is alive in his mid 80’s and lives on his own. Her mother died from breast cancer 20 years ago.
Her dad is quite well apart from diabetes and Deena wants him to hand in his drivers licence as his vision is deteriorating rapidly due to the diabetes.
Bernie and Deena want to make sure that their financial plan and lifestyle is not impacted by an unfortunate event impacting either of them.

Required
Question 1 – max 1000 words
Apply the Risk Management Process – 5 steps to the Smith’s situation.
Step 1: Define objectives
Step 2: Identify and measure potential loss exposures
Step 3: Evaluate potential loss exposures
Step 4: Select most appropriate risk management techniques
(Note: Can present Step 3 and 4 in matrix)
Step 5: Implement and monitor the program

Question 2 – max 1500 words
You get a sense that Deena has instigated this meeting as Bernie wonders out loud ‘Given the cost of insurance is it really worth it? I know we will have to pay a lot for me because I smoke, but I am not really a smoker! Maybe we build savings for the possibility and take the chance nothing too bad will happen to us.’
In your response to Bernie explain to him the concepts of:
a) How insurance works
b) What is an insurable risk
c) Types of insurance and tax implications (overview)
d) The key concepts of insurance law
e) How consumers are protected